Markets for renewable energy and pollution emissions: Environmental claims, emission-reduction accounting, and product decoupling

Abstract

Green electricity generation can provide an indirect route to cleaner air: by displacing generation from fossil fuels, green electricity can reduce emissions of CO 2 and conventional air pollutants. Several types of voluntary markets have emerged in the United States to take advantage of this relationship, including green electricity programs, carbon offsets, and renewable energy certificates. At the same time, regulators are favoring cap-and-trade mechanisms for regulating emissions. This paper describes the appropriate framing of environmental claims for green electricity products. We apply an accounting framework for evaluating claims made for capped pollutants, with entries for emissions, avoided emissions due to green electricity, and unused emission permits. This framework is applied in case studies of two major electric utilities that operate with green electricity programs and capped pollutants. The cases demonstrate that the relative magnitude of “unused permits” and “emissions avoided” is a key relationship for evaluating an emissions reduction claim. Lastly, we consider the evolution of the green electricity marketplace given the reliance on cap-and-trade. In this setting, pollution-emission products could be decoupled from one another and from the various green electricity products. Several positive consequences could transpire, including better transparency of products, lower certification costs, and more product choices.